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Management Accounting
PRICING DECISION & DECISION MAKE OR BUY DECISION

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 Click to edit Master title style Pricing Decisions
Introduction

Pricing decisions are a fundamental aspect of strategic management and marketing

for any business. The process of setting prices for products or services is a
multifaceted one that requires a careful consideration of various factors to achieve
business objectives effectively. The pricing decision is not merely about assigning a
monetary value; it's a strategic choice that can significantly impact a company's
profitability, market positioning, and overall competitiveness.
The introduction of pricing decisions involves navigating a complex landscape that
includes internal factors such as production costs, external factors like market
demand, and considerations of customer perceptions and behavior. The ultimate goal
is to strike a balance that not only covers costs and ensures profitability but also
aligns with the value proposition offered to customers.

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Key components of the pricing
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include:
OBJECTIVES: CLEARLY DEFINING PRICING OBJECTIVES IS THE STARTING POINT. WHETHER
THE AIM IS TO MAXIMIZE PROFIT, GAIN MARKET SHARE, ESTABLISH A PREMIUM BRAND
IMAGE, OR ACHIEVE ANOTHER STRATEGIC GOAL, THE PRICING STRATEGY WILL BE TAILORED
ACCORDINGLY.
COST ANALYSIS: UNDERSTANDING THE COSTS ASSOCIATED WITH THE PRODUCTION,
DISTRIBUTION, AND MARKETING OF PRODUCTS OR SERVICES IS CRUCIAL. THIS ANALYSIS
ENSURES THAT PRICES SET ARE NOT ONLY COMPETITIVE BUT ALSO COVER ALL RELEVANT
EXPENSES, ALLOWING FOR A SUSTAINABLE BUSINESS MODEL.
MARKET RESEARCH: COMPREHENSIVE MARKET RESEARCH HELPS IN UNDERSTANDING
CUSTOMER NEEDS, PREFERENCES, AND THE OVERALL ECONOMIC ENVIRONMENT. IT
PROVIDES INSIGHTS INTO THE DEMAND FOR THE PRODUCT OR SERVICE AND HELPS IDENTIFY
POTENTIAL PRICING STRATEGIES.
COMPETITOR ANALYSIS: ANALYZING THE PRICING STRATEGIES OF COMPETITORS IS
ESSENTIAL FOR POSITIONING YOUR OFFERINGS IN THE MARKET. IT HELPS DETERMINE HOW
YOUR PRICES COMPARE AND WHETHER YOU AIM TO DIFFERENTIATE BASED ON PRICE,
QUALITY, OR OTHER FACTORS.
VALUE PROPOSITION: CONSIDERATION OF THE PERCEIVED VALUE OF THE PRODUCT OR
SERVICE IN THE EYES OF CUSTOMERS IS CRUCIAL. THIS INVOLVES UNDERSTANDING HOW
CUSTOMERS PERCEIVE THE BENEFITS AND FEATURES OFFERED AND ALIGNING PRICING WITH
THAT PERCEIVED VALUE.
keshavamurthy
SEGMENTATION AND TARGETING: RECOGNIZING THAT DIFFERENT CUSTOMER SEGMENTS 21IABCM165 3

MAY HAVE VARYING PRICE SENSITIVITIES, A PRICING STRATEGY MIGHT INVOLVE SEGMENT- B.Com ’ D ‘
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Steps in Pricing
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Set Objectives:
Decision
Clearly define your pricing objectives. These may include maximizing profit, gaining market share, maintaining a certain image or brand positioning, or achieving
a specific return on investment.
 Understand Costs:
Identify and understand all relevant costs associated with your product or service. This includes production costs, distribution costs, marketing costs, and any other
expenses that contribute to the overall cost structure.
 Analyise Market and Demand:
Research and analyze the market to understand the demand for your product or service. Consider factors such as customer needs, preferences, and the overall
economic environment. Evaluate how price changes might impact demand.
 Competitor Analysis:
Examine the pricing strategies of your competitors. Understand their pricing structures and positioning in the market. This information can help you determine how
your pricing strategy compares and where you fit in the competitive landscape.
 Determine Pricing Strategy:
Choose a pricing strategy that aligns with your objectives and market conditions. Common strategies include cost-plus pricing, value-based pricing, competitive
pricing, and dynamic pricing.
 Consider Value Perception:
Assess the perceived value of your product or service in the eyes of customers. Determine if you can position your offering as a premium product with higher
pricing or as a budget-friendly option with lower pricing.
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 Psychological Pricing:
Explore psychological pricing tactics. Pricing strategies that consider human psychology, such as pricing just below a round number or using odd pricing (e.g.,
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$9.99), can influence consumer perceptions.
 Set the Actual Price:
Determine the specific price point for your product or service based on the chosen pricing strategy and the insights gathered from market research and analysis.
 Test and Adjust:
Consider conducting pricing experiments or pilot programs to test the effectiveness of your chosen pricing strategy. Monitor customer reactions, sales
performance, and profitability. Be prepared to adjust your pricing based on the results.
 Implement Pricing Tactics:
Decide on any additional pricing tactics or methods, such as discounts, promotions, or bundling, to support your overall pricing strategy.
 Monitor and Adapt:
Regularly monitor market conditions, competitor actions, and customer behavior. Be prepared to adapt your pricing strategy to respond to changes in the
business environment.
 Legal and Ethical Considerations:
Ensure that your pricing practices comply with legal and ethical standards. Avoid deceptive pricing practices and ensure transparency in your pricing
communication.
 Communicate Pricing:
Clearly communicate your pricing to customers. Transparency builds trust, and customers should understand the value they are receiving at the given price
point.

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 Example of Pricing Decision
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bjectives:
The company's primary objective is to gain a significant market share for the new smartphone while maintaining a premium brand image.
They also aim to achieve a return on investment within a specified timeframe.
ost Analysis:
The company calculates all costs associated with the production, distribution, and marketing of the smartphone. This includes
manufacturing costs, research and development expenses, marketing and advertising costs, and distribution costs.
Market Research:
The company conducts market research to understand customer preferences, needs, and the overall demand for smartphones in the target
market. They analyze the features and prices of competing smartphones.
ompetitor Analysis:
The pricing team evaluates the prices of similar smartphones offered by competitors. They assess whether the new smartphone will be
positioned as a premium product or if it will be priced competitively to gain market share.
alue Proposition:
Considering the unique features of the smartphone, the company assesses the perceived value of these features in the eyes of customers.
They aim to align the pricing with the value offered, whether it's advanced camera technology, longer battery life, or other distinctive
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Decision
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MasterBuy Decision
title style

Introduction

In the complex landscape of business operations, companies often face the strategic dilemma of whether to
manufacture a product or provide a service in-house or to outsource it to external suppliers. This decision
encompasses a range of considerations, including production costs, core competencies, market conditions, and risk
mitigation.
The decision to make or buy is a critical aspect of strategic management and supply chain
management for businesses. This decision-making process involves choosing whether to produce a product or
service internally (make) or to acquire it from external sources, typically other businesses or suppliers (buy). The
make-or-buy decision has significant implications for a company's operations, cost structure, and overall
efficiency.

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Factors Master title
the Make-or-Buy style:
Decision
 Cost Analysis:
Conducting a comprehensive cost analysis is crucial. This involves comparing the costs associated with in-house production, such as labour, materials,
overhead, and facility expenses, against the costs of outsourcing.
 Core Competencies:
Evaluating the organization's core competencies is essential. Companies should focus on in-house production for activities that align with their strengths and
competitive advantages. Non-core or secondary activities may be candidates for outsourcing.
 Capacity and Expertise:
Assessing the existing capacity and expertise within the organization is vital. If a company lacks the necessary skills, technology, or resources to efficiently
produce a specific product or service, outsourcing to specialists may be a viable option.
 Risk Management:
Consideration of risk factors is paramount. Internal production may provide better control over quality and intellectual property, but it also entails operational
risks. Outsourcing introduces external dependencies but can mitigate certain operational risks.
 Market Conditions:
The state of the market, demand fluctuations, and industry trends play a role in the decision-making process. Rapidly changing markets or uncertain demand
may influence the decision to keep production in-house for more flexibility.

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Example:

Consider a technology company that faces the make-or-buy decision for a crucial component of its
products. If the company possesses the expertise and resources to manufacture the component
efficiently and cost-effectively, it may choose to make it in-house. Alternatively, if outsourcing the
production of the component to a specialized supplier results in cost savings without compromising
quality, the company may opt to buy.
In conclusion, the make-or-buy decision requires a thorough analysis of various factors to
determine the most effective and efficient way to fulfill organizational needs. Striking the right
balance between in-house production and outsourcing is essential for maximizing competitiveness
and achieving strategic objectives.

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Thank You

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